SOUTH AFRICAN OVERVIEW – Cape of Hope

South African sales have been hit hard by Kumala’s decline, but a strong generic message leaves the category well placed to recapture market share, says Ben Grant

South African sales have been hit hard by Kumala’s decline, but a strong generic message leaves the category well placed to recapture market share, says Ben Grant If you are the kind of person who believes in proverbs you’ll know not to put all your eggs in one basket. You’ll also probably be aware that a stitch in time saves nine, that too many cooks spoil the broth and that a watched pot never boils, but I digress. Unfortunately, however, when it comes to old adages the South African wine trade isn’t too hot, and it rather failed to distribute it’s eggs appropriately. So, when the Kumala basket got dropped, the entire category was sent reeling.

A look through the latest sales figures shows quite how variable and unpredictable the category’s UK performance is – but it is by no means bad news all round. Of the top 20 brands ten have registered both volume and value growth during the last year, while the remaining ten are in decline (Nielsen MAT to w/e 24.03.07, see table page 84). And the depth of fluctuation is also significant: only three of the 20 generated volume sales within +/-10% of the previous year’s total. Compared with the rest of the New World, the category’s supply base is sorely lacking in reliability: consistent, South Africa most certainly is not.

As the category has slumped, many have been quick to point the finger at Kumala. But is such criticism really fair? From a strictly statistical analysis it seems that indeed it is: overall South African volume has declined by 10% and value is down 9%. But remove Kumala’s numbers from the equation (see box on page 86) and total volume is down just 0.7% while value has actually posted a modest increase of 1%.

Constellation Europe is commendably honest in its appraisal of the early performance of the brand under its stewardship. In our extensive analysis of the brand’s past, present and future (page 86) Simon Thorpe says the decline was “the natural fall-out from the transition”. A year later, he argues, the company has addressed every element of the brand – from growing and winemaking through to marketing and range – and is poised to “return to 2005 levels”. So, with a resurgent category leader, is the Rainbow Nation primed to shine once again?

In terms of output, there is little argument that South African wine has improved markedly in recent years. Still a relative newcomer to the international wine world, when it comes to quality the category is only now realising its true potential as a new generation of dynamic and skilled young winemakers unlock the category’s undeniable promise. Notably, the category represents value for money, which is good news for the consumer, but a stumbling block for suppliers trying to encourage trade up.

Of course, a selection of well structured and easily understood brand families is the best way to achieve trade up and here, too, there are undoubtedly grounds for optimism: Kumala has been given a more premium image, supported by a £5 million marketing budget; First Cape has made a massive impact with Brand Phoenix engineering phenomenal growth through a heavy promotional program; and Thierry’s acquisition of the KWV portfolio should inject some strategic energy into some prolific brands that have lost their shine of late. 

Diversity causes division
A strong, coherent and united generic message is a major factor in making or breaking the category. The latest campaign initiated by WOSA last year – “Diversity is in our nature” – is an intriguing concept that has plenty of potential and has won the plaudits of many in the trade, but the complexity of the message means this support is by no means unanimous.

Jo Mason, market manager for WOSA in the UK, explains that establishing differentiation between SA and the competition was central to the concept. South Africa is paying great attention to its natural environment and the wine industry is heavily involved in this. WOSA felt that this presented a genuine point of difference and, crucially, it is also a factor that has particular resonance with consumers who are increasingly concerned about environmental issues.

“We’re seeing a more ethically aware consumer emerging, and South Africa is in an incredibly strong position to accommodate this with its Fair Trade and bio-diversity initiatives,” says Lindsay Talas, Thierry’s deputy buying director. Orbital’s Nick Dymoke-Marr agrees that the message taps into a hot trend. “It’s a very positive message,” he says, “environmental issues are very high on the agenda for consumers at the moment”.

Undoubtedly the theory is good, but it’s a particularly difficult notion to communicate. “It’s a very complicated series of messages, so it’s very difficult to articulate in a way that connects with the consumer,” Dymoke-Marr continues. Lourensford’s Anton du Toit is supportive of the initiative, but has some serious reservations: “It’s good to be seen as in tune with nature, but it’s a difficult message. When you come down to the scientific side, what does this actually mean to the consumers? It’s a very difficult concept to sell.

”The complexity is undoubtedly one of the key strengths of the campaign. Oenophiles are notoriously curious creatures, keen to explore and discover. “For the interested consumer there’s plenty to learn,” says Paragon marketing manager Andrew Barraclough, and this will have great appeal for many consumers. However, as Garreth Anderson at DGB points out, there is a danger that this depth of information could in fact alienate some people. “I’m not entirely convinced that it’s the right message – it’s a very intellectual concept. Is this relevant to all consumers?

”The first phase of the campaign was focused on the rich diversity of fauna in the Cape. Given that the region boasts the largest selection of native flowers in the world, this was a logical first step – but as several suppliers point out, there’s a need to express other elements of South Africa’s diversity. “We mustn’t be too fixated on the floral element,” says du Toit, “it’s important to move on to different aspects. There are so many examples of diversity in the country – environment, culture, language, wildlife – just showing one element doesn’t get the message across clearly.” Greg Wilkins agrees: “The diversity message should certainly stay, but not just ‘bio’. It’s a really interesting message but the focus is still too narrow – I hope that WOSA have taken this on board and will broaden the concept this year.” 

Road to recovery
To say that Kumala has had a tricky 18 months would be an understatement of gross proportions. Having been painstakingly built in the UK by South African specialist Western Wines, twice the brand changed owners, gobbled up first by Vincor then by Constellation. And it has proven to be a troublesome transition: promotional slots were lost, almost £40 million was wiped off the value, volume spiralled by a third and dragged the entire South African category down with it.

The decline was a “natural fall out from the transition of ownership,” says Constellation Europe’s Simon Thorpe. Two-thirds of Western’s business was focused on South Africa, and Kumala was “always number one item on the agenda in meetings.” Absorbed into a rather weightier portfolio, the brand suddenly found itself a “much smaller fish in a much bigger pond.” The first priority, therefore, was to make sure that the personnel at Constellation were clued up on category and brand – or as Thorpe puts it, “an internal marketing drive… infusing Kumala into the Constellation business.”

Step two, put crudely, was to improve the quality of the product. During an extensive interview the frequency with which Thorpe used the term “over-deliver” made unmistakably clear how critical this was to the strategy. Careful not to deride the former output (and pointing out the fact that 50 pence was added to the price last summer), he explained that suppliers “were delivering to the level that was required of them.” Now, however, the “aspirations have risen,” so Constellation is focused on working with producers to ensure optimum output. “It’s not about spending money, it’s about investing time, effort and people to on-the-ground relationship management.” And it seems to have worked: when a selection of the premium range was bought into the drinks business for tasting, there was unanimous agreement that the bar has been raised.

Getting the range right was another critical element on the road to recovery. A new premium range, priced at £6.99, has been added, while a number of references have been rationalised. The result is a leaner, more focused selection that reinforces the quality message. It was introduced to the trade at LIWSF last month.

If the trade can be convinced, then the final piece of the jigsaw will be addressing the end consumer – and to this end, Constellation has allocated a significant fighting fund. Presented under a new strapline, “let the adventure begin”, the brand is supported by a £5m marketing war chest. From the end of April Kumala started a major link up with Heart 106.2FM. It is also running a major PR and advertising campaign with key London newspapers and magazines and sponsoring a fleet of (formerly) black cabs. It is, admittedly, a distinctly London-centric strategy, but the impact will be significant, reaching some 2 million Londoners over the next year.

To its credit, Constellation has been candid in its admission that all was not well with the brand, and has shown a clear commitment to resuscitating its new asset. And, it must be noted, an organisation with the business acumen of the US giant would not have picked up the brand without a clear expectation that it could return to growth. It also seems likely that now Constellation has developed a taste for South Africa it will look to increase the portfolio with further brands. No concrete decisions have been made, but Thorpe says, “There’s a real will to take a leadership role in South Africa that will go beyond just Kumala.” At this stage he is unable to say whether the company is looking to build or acquire brands, but did confirm that “broad-based discussions are in progress.”

Constellation is well aware that alongside category leadership comes weighty responsibility, and Thorpe acknowledges that “it is incumbent on us to drive the entire category forward.” He expresses confidence that “we can soon return to 2005 levels.” The rest of South Africa will be watching closely to see if his prediction rings true.

Line of communication

Whether or not the generic body plans to expand the message remains to be seen, but there is definitely a sense that it is starting to be understood by the trade. However, there is still plenty of work to be down before it makes a lasting impression on consumers. “I’m not sure that we’re getting the message out with enough frequency and visibility to drive sales,” says Anderson. This is a significant stumbling block: Neville Carew of Spier points out that WOSA receives far less government investment to market the message than the Australian generic body, for example. The weakness of the rand in the last year has also put serious financial pressure on all parties, restricting the amount of cash available to spend on generic communication.

A number of suppliers – who shall remain unnamed – expressed pretty serious reservations about the campaign. However, they were unable to come up with a viable alternative (other than heritage and tourism, hardly the most exciting or original of concepts). “With the resources available WOSA is doing a great job, but as an industry we could help further in implementing the message,” says Carew. “It really doesn’t help to criticise without a constructive alternative, so we should all be working together.

”PLB trade marketing coordinator Paul Shelton suggests that the diversity message is not necessarily a uniquely South African factor, pointing out that “there’s a danger Chile could claim these factors too.” However, the announcement of a conference to be held at the end of this month indicates that the category is definitely leading the way when it comes to bio-diversity. Winemakers from Australia, New Zealand and California are expected to attend the gathering in the Cape Winelands to hear how South Africa has managed to set aside over 50,000 hectares for natural conservation (representing almost half of the total land under vine). 

Retailer reliance
In order to get the message into the mind of the consumer, the support of the retailers is crucial. And thankfully for South Africa it appears that the UK retail trade has a bit of a soft spot for the category. “In my experience the retailers are really supportive of South Africa across the board, they really want the category to work,” says Wilkins. Of course, much of the decline over the last year comes down to the fact that Kumala lost a lot of crucial promotional slots, but anecdotal evidence suggests that these spaces are rapidly being taken back – either by Constellation’s market leader or by the category’s other emerging brands.

Late last year a number of buyers were invited to sit on WOSA’s steering committee – the first time that a generic has asked retailers to join it. The motivation was two-fold, says Mason: to help them better understand what South Africa means and how the bio-diversity message fits into this, and also to draw on their considerable experience. Any moves that bring different parties together and increase communication are positive, and given the complexity of the campaign, this is a particularly inspired move by WOSA.

So what is the future for the category? The evidence suggests a distinctly positive one. Tourism is booming, raising the country’s already sky-high perception in consumers minds – and wine is an integral part of any holiday to South Africa. The World Cup in 2010 will only serve to heighten interest in the country.

From a vinous perspective the quality of the wine is undoubtedly on the up, but there’s still plenty of room for further improvement. And when it comes to brands, not only is the market leader poised for resurgence, but its poor recent performance has enabled a number of other brands to take a step up to the next level. South Africa certainly won’t be caught putting all it’s eggs in one basket again.

Pouch Packs a punch
Building strong wine brands is, of course, a monumentally taxing task. Ensuring exposure and driving growth without undermining the value and perception is a tremendously tricky balancing act. So why not avoid price-related activities, and instead focus on implementing innovations that garner attention and interest without having to rely on price offs? Such was the philosophy at Arniston Bay – and the Company of Wine People is hoping that it’s anti-discounting concept will be vindicated following the launch of a major new packaging initiative at the LIWSF.

“All innovation in recent years has been focused on the commercial side,” says brand and business development manager Johann Hewitt, “but in terms of packaging the industry has been static. We haven’t seen any brands prepared to move away from the standard bottle format.” Having conducted extensive consumer research the company identified that there are two key trends prevalent in the marketplace: convenience and environmental concern. Notably, both of these factors are also intimately linked to the issue of packaging. 

So the company went back to the drawing board and devised an entirely new format: the pouch. Available in 25cl, 1.5l and 2l sizes, “the pouch is a very functional item, but it’s also very classy and has visual appeal”. It’s lightweight, easily recycled and even chills easily (notoriously problematic for wine boxes). Initial retailer response has been very strong, and research conducted by Drinks Insight indicates that consumers are drawn towards both the convenience and the environmental credentials of the pouch. Hewitt also believes that the uniqueness of the new format may even be strong enough to encourage some retailers to merchandise it away from the wine area.

It will be interesting to see what impact the concept has over the summer but you can also be assured that the Company of Wine People won’t be resting on their laurels. “We’re just launching the pouch, but we’re also looking at a couple of other developments too,” says Hewitt. One such project in the pipeline is a carry pack containing four or six 25cl bottles of mixed varietals, which will enable consumers to taste their way through the range.

“We’re looking hard at how to build the brand without going down the deep discounting route, that’s just not the way to build brands in the long term,” Hewitt explains. Innovation is perhaps the most overused word in the drinks lexicon – we are relentlessly bombarded with new developments that claim to be distinctly different but are, at most, variations on a theme. Whether or not it proves to be a commercial hit the Company of Wine People should be applauded for its vision, creativity and investment – no doubt the rest of the trade will be watching closely to see how the pouch performs. 

© db June 2007